TAX RESIDENCE FOR INDIVIDUALS
Irish residents are subject to Irish tax on their worldwide income and capital gains. Individuals are subject to income tax on their income arising in a tax year (6th April to the following 5th April).
Since 6th April, 1994 an individual will be resident in Ireland for tax purposes where he is in Ireland for either a total of
- 183 days in any tax year, or
Formerly any part of the day was counted as a whole day in considering whether a person was Irish tax resident. However the new provisions only take account of a day, where a person is present at the end of the day (i.e. midnight) in Ireland. This relaxation will be of particular benefit to foreigners who make regular day trips to Ireland for business purposes.
If an individual does not satisfy these tests, he may still exercise an option in certain limited circumstances to be treated as Irish tax resident, subject to agreement with the Revenue Commissioners. The exercise of this option would be of benefit to the individual in a limited number of cases, where advantage could be taken of a double taxation treaty.
Where an individual satisfies these tests, but is not domiciled in Ireland, he will still obtain relief, in that his foreign income will only be subject to Irish tax if it is remitted to Ireland.
ORDINARY RESIDENCE
An individual will be ordinarily resident in Ireland where he has been resident in Ireland for each of the three preceding tax years. An individual will only cease to be ordinarily resident in Ireland when he has been non-Irish resident for three consecutive tax years, applying the foregoing rules for residence.
The primary effect of being ordinarily resident is even if the individual is not actually resident for that tax year, any disposal of capital assets, wherever situate, is within the charge to Irish capital gains tax. In addition all investment income both Irish and foreign (over IR£3,000) is subject to Irish tax.
There is no charge to Irish tax on income earned from employment which is performed wholly outside Ireland. Incidental duties performed in Ireland are ignored for this purpose. Care should therefore be taken by any person who is Irish ordinarily resident to ensure that any part of his duties carried out in Ireland are minimal. Otherwise his entire income will be subject to Irish tax.
Where an Irish ordinarily resident person is also resident in another country, he may be entitled to relief from Irish tax under a double taxation agreement depending on his country of residence.
Certain practical difficulties do arise, particularly in the case of an ordinarily resident individual who is living outside Ireland. Although there is a requirement that such individuals file returns on a self assessment basis with the Irish Revenue Commissioners, many may not be aware that they are obliged to do so. In such cases failure to file returns could give rise to serious interest and penalties.
EMIGRANTS OR IMMIGRANTS RELIEF
This relief applies to employment income and is of particular benefit to those moving employments from one country to another during a tax year. The relief does not extend to investment income or capital gains.
Where :
- A person arrives in Ireland during a tax year who will be Irish tax resident for that year and also for the following year; or
- Leaves Ireland during a tax year with the intention of staying abroad for the rest of that tax year and remaining non-Irish tax resident for the following tax year,
- he will be exempt from Irish tax on any foreign employment earnings arising prior to his arrival in Ireland or after his departure from Ireland. In both of these cases the individual's entitlement to personal allowances will not be reduced for the time spent outside Ireland during a tax year.
PERSONAL ALLOWANCES FOR EUROPEAN UNION (EU) NATIONALS
Nationals of EU Member States who are non-Irish tax resident can benefit from Irish personal tax allowances. The amount of the allowances will depend on the proportion of their worldwide income which is subject to Irish tax.
11.2
DOMICILE
As a matter of Irish law, an individual is domiciled in the country of his permanent home, that is the country where he regards himself as belonging. Each person is deemed to have a domicile of origin (the country where their father is domiciled when they are born) and will be regarded as domiciled in that country until a domicile of choice is acquired. To cast off a domicile of origin a person must cease to have any further connection with that country and intend to permanently reside elsewhere. Physical presence coupled with an intention to reside permanently in a country are generally necessary to prove acquisition of a domicile of choice. Citizenship is generally not a relevant factor.
11.3
TAX IMPLICATIONS OF DOMICILE AND RESIDENCE
Individuals who are both domiciled and tax resident in Ireland are liable to income tax on their worldwide income wherever arising. Individuals resident and not domiciled in Ireland are liable to Irish income tax on Irish income and U.K. income and remittances of foreign income to Ireland.
A U.S. national coming to Ireland on a temporary basis will have the opportunity of structuring his financial affairs to minimise his Irish income tax. Assuming he will be Irish resident, he could restrict Irish income arising to him from his Irish based employer and instead arrange that he become engaged by the U.S. parent company, to render services in Ireland and elsewhere. Provided his salary is not paid in Ireland he should be able to reduce the amount of income liable to Irish tax. Any U.S. income would only be taxable if remitted to Ireland. Remittances of capital would not be subject to income tax and in certain instances would not be subject to capital gains tax.
Individuals who are not resident in Ireland are only liable to Irish income tax on income arising in Ireland and are only liable to Irish capital gains tax in the same circumstances as non-resident companies (see Section 8).
Individuals who are resident in Ireland are liable to capital gains tax on chargeable gains on the disposal of worldwide assets. Where such individuals are not domiciled in Ireland however they are liable to capital gains tax on the disposal of assets situate outside Ireland and the U.K. only to the extent that the chargeable gains are remitted to Ireland.
In addition to availing of the above rules, U.S. personnel based in Ireland may be compensated by, amongst other things, approved profit sharing schemes.
11.4
APPROVED PROFIT SHARING SCHEMES
Under profit sharing schemes approved of by the Revenue Commissioners, it is possible to give employees a tax free element of their salary package. Employees can each receive up to IR£10,000 each year in the form of shares in the company tax free. There are certain requirements of the Revenue Commissioners concerning the exact nature of the shares, the manner of disposal of the shares and eligibility of employees to participate in the scheme, before such a scheme will be approved.
This article is intended to provide general guidelines. Specialist advice should be sought about specific facts.